Economic Efficiency and Payback of Renewable Energy Projects

Abstract

This paper investigates the economic efficiency and payback performance of renewable energy investment projects, with a focus on solar and wind power plants. The study aims to provide a comprehensive assessment of investment viability by integrating profitability evaluation with advanced risk analysis techniques. A unified analytical framework is proposed, combining traditional financial indicators—Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period—with modern tools such as sensitivity analysis, scenario modeling, and Monte Carlo simulation. The novelty of the research lies in the integration of probabilistic risk assessment methods and scenario-based modeling into a single framework that captures both technological development and market dynamics. The model incorporates key external factors, including energy price volatility, regulatory changes, and technological innovation, to enhance the accuracy of investment evaluation. The results demonstrate that renewable energy projects are economically viable under baseline conditions, with positive NPV, competitive IRR, and acceptable payback periods. However, project performance is highly sensitive to electricity prices, capital costs, and discount rate assumptions. Monte Carlo simulation confirms a high probability of positive returns, while scenario analysis reveals significant variability in outcomes across optimistic, baseline, and pessimistic conditions. The study emphasizes the importance of flexible investment strategies and effective risk management mechanisms, such as long-term power purchase agreements, insurance instruments, and revenue diversification. Overall, the findings confirm that renewable energy projects offer substantial economic potential when supported by robust analytical evaluation and adaptive risk management approaches, contributing to sustainable energy development.